Queen’s honours are awarded “to deserving people from all walks of life, in public recognition of their merit, service or bravery.” As an Irish citizen, the system has always seemed a bit strange, but nevertheless such awards undoubtedly provide value for recipients. Honours are awarded on the advice of the Cabinet Office, and it has recently hit the headlines that tax behaviour of proposed candidates will have an impact on the likelihood of an award being granted. For instance, it has been reported that “poor” tax behaviour has led to honours not being awarded to about 150 sports stars and other public figures, such as David Beckham and Robbie Williams. Information regarding tax behaviour is obtained from HMRC and it is likely that the disclosure of the information is a breach of HMRC’s duty of confidentiality.
Background
The government submits that the integrity of the honours system is protected by the carrying out of “probity checks” and as part of this process, the Honours and Appointments Secretariat in the Cabinet Office may ask HMRC to advise about any potential “risk” to the honours system posed by candidates in respect of their tax affairs. Not all candidates have their tax affairs appraised as part of the process – checks are apparently requested on a proportionate basis, taking account of the level of the honour and the profile of the individual.
HMRC will respond to the request from the Secretariat by giving an assessment of the risk of the taxpayer – by reference to a low, medium or high rating (see memo at page 8). Low means that the individual has “no markers on HMRC’s records to indicate an enquiry or only minor issues found during a check or enquiry”. Medium means that the individual “may still be or have been involved in behaviours which cause concern”. High relates to an individual with “serious areas of non-compliance; either current or in the recent past… or who is currently involved in other serious non-compliant arrangements”.
Permissible disclosure of information?
The disclosure of information in such circumstances will naturally engage HMRC’s duty of confidentiality, which is set out in section 18(1) of the Commissioners for Revenue and Customs Act 2005:
“Revenue and Customs officials may not disclose information which is held by the Revenue and Customs in connection with a function of the Revenue and Customs”
This duty however is subject to a number of exceptions, of which for present purposes that found in section 18(2)(a) is relevant
“[The duty] does not apply to a disclosure (a)which (i)is made for the purposes of a function of the Revenue and Customs, and (ii)does not contravene any restriction imposed by the Commissioners”.
HMRC claims that the disclosure of risk profiles to the Cabinet Office is justified on the basis of section 18(2)(a). The reasoning is set out in the Memorandum of Understanding between HMRC and the Cabinet Office at paragraph 2.3:
“The Commissioners believe that disclosure of HMRC information to Cabinet Office (Honours and Appointments Secretariat) to inform the honours committees’ recommendations on whether an honour is to be awarded is necessary to fulfil HMRC’s functions of collecting and managing revenue by:
i) Increasing the likelihood that the individual subject to the HMRC check will ensure that their tax affairs are in order and up to date;
ii) Increasing the likelihood that other individuals in a similar position will be influenced to rectify their tax affairs if they become aware that poor tax behaviour is not consistent with the award of an honour;
iii) Increasing the likelihood that taxpayers at large will maintain their trust in the integrity of tax administration by HMRC and comply with their tax obligations voluntarily if tax behaviour is seen as a factor when considering public reward and recognition via the honours system; and
iv) Reducing the likelihood that taxpayers at large will lose their trust in the integrity of tax administration by HMRC and so fail to comply with their tax obligations voluntarily. Trust would likely be lost if an honour was awarded to someone with negative tax behaviours and those behaviours became linked to the positive recognition that accompanies the award of an honour.”
Now these reasons could certainly be used to argue for an amendment in the law to make explicitly clear that there may be disclosure of risk to the Cabinet Office when honours are being considered. But the question to be answered here is not whether the disclosure of tax risk would be a desirable power for HMRC to have. The question is whether HMRC does in fact have this power and it would appear that it does not in light of the Supreme Court’s decision in R (Ingenious Media) v HMRC.
The case concerned an “off the record” disclosure by David Hartnett, then Permanent Secretary for tax at HMRC, to journalists from The Times. The subject of the conversation was tax avoidance schemes that were taking advantage of the “Film Partnership” legislative provisions. Over the course of the meeting, Hartnett referred specifically to Ingenious Media and Patrick McKenna, as marketers of such avoidance schemes, noted that they had contributed to depriving the public purse of circa £5 billion, that McKenna had personally benefited from the tax relief, that McKenna was a big risk, and denounced film schemes as “scams for scumbags”. Some of these comments were later quoted, albeit with anonymity attached, in two articles published by the journalists in The Times on 21 June 2012. Perhaps unsurprisingly, Ingenious Media and McKenna (the claimants) sought judicial review of the decision of Hartnett to disclose such information to The Times journalists (this information is all lifted from my Case Note published in the British Tax Review, which can be downloaded here). The Supreme Court unanimously found that the duty of confidentiality was breached. In doing so, the Court rejected the justifications put forward by HMRC for disclosing the information, which were predicated also on section 18(2)(a):
The cadence of the Court’s judgment is that for disclosure to be justified under section 18(2)(a) there must be a direct link between disclosing taxpayer information and the collection of tax (see in particular paras 33 and 35) – that the disclose directly assists HMRC in carrying its primary function of collecting and managing taxes and credits (section 5 of Commissioners for Revenue and Customs Act 2005). The problem for HMRC is that none of the reasons set out in para 2.3 of the Memo appear to provide a direct link. The reasons are speculative, rather than grounded in evidence, and relate mostly to future compliance rather than current investigations. The very language of “increasing the likelihood” or “reducing the likelihood” suggests that the link between disclosure and collection is shaky.
A defence of HMRC might be that the information disclosed is not confidential – thus not having the “necessary quality of confidence about it” (Saltman Engineering) – as the tax affairs of individuals are not actually disclosed to the Cabinet Office, but rather only HMRC’s opinions of particular individual’s tax affairs. That does not sound particularly convincing. It would be comparable to saying that a doctor is under a duty not to disclose information I present to her during a private consultation but may freely disclose the medical view she has formed of my ailments.[1]
In sum then, on the basis of the Supreme Court’s judgment, it is likely that the disclosure of information regarding “risk” to the Cabinet Office breaches HMRC’s duty of confidentiality.
[1] Though if I was brought to the doctors by somebody who has responsibility for my care, the disclosure to that person might be different.
Dr Stephen Daly 